Dragon steps beyond the Great Wall

What China needs now
is political modernization

Brahma Chellaney
Economic Times, December 20, 2009

SIX DECADES after it was founded, the People’s Republic
of China
has emerged as a major global player. In fact, China’s
rise in one generation as a world power under authoritarian rule has come to
epitomise the qualitative reordering of power in Asia
and the world. As the 2009 assessment of US intelligence agencies predicted, China is
“poised to have more impact on the world over the next 20 years than any other
country.” 

    The ascent of China, while a symbol of the ongoing global
power shifts, has been accentuated by major geopolitical developments — from
the unravelling of the Soviet Union that eliminated a mighty empire to China’s north
and west, to the manner the American colossus has stumbled after the
triumphalism of the 1990s. China’s
economy has expanded more than 13-fold over the last 30 years. Consequently,
its state-owned corporate behemoths are frenetically buying foreign firms,
technologies and resources. Add to the picture its rapidly swelling
foreign-exchange coffers, which now total over $2.1 trillion. Beijing thus is well-positioned
geopolitically to further expand its influence.

    China
also became militarily powerful even before it sought to become economically
strong.

    China’s economic rise, however, owes a lot to
the West’s decision not to sustain trade sanctions after the 1989 Tiananmen Square massacre, but
instead to integrate Beijing
with global institutions through the liberalizing influence of foreign
investment and trade. That the choice made was wise can be seen from the baneful
impact of the opposite decision that was taken on Myanmar from the late 1980s — to
pursue a penal approach centred on sanctions.

    Also, without
the expansion in US-Chinese trade and financial relations, China’s growth
would have been much harder. Its phenomenal economic success has been
illustrated by its emergence with the world’s biggest trade surplus, largest
foreign-currency reserves and highest steel production. Today, having vaulted
past Germany to become the
world’s biggest exporter, China
is set to displace Japan
as the world’s No 2 economy.

    In today’s
context, the single biggest factor aiding Chinese foreign policy and currency
manipulation is US
dependence on large capital inflows from China. The US-China relationship
has a deeper base than US-India relations. From being allies of convenience in
the second half of the Cold War, they have gradually emerged as partners tied
by interdependence. Just as the beleaguered US
economy cannot do without continuing capital inflows from China, the
American market is the lifeline of the Chinese export juggernaut. America indeed depends on Chinese surpluses to
finance its supersized budget deficits, while Beijing
depends on its huge exports to America
both to sustain its high economic growth and subsidize its military
modernization.

    It was thus no
surprise that US President
George W. Bush left the White House with a solid China-friendly legacy, best
illustrated by the manner in which he ignored the Chinese crackdown in Tibet and
showed up at the Beijing Olympics. It isn’t a surprise either that his
successor, Barack Obama, has gone further by demoting human rights and by
emphasizing economic, environmental and security relations with China. Today,
there is talk even of a US-China diarchy — a G-2 — ruling the world.

    Obama indeed
seems fixated on the very country whose rapidly accumulating power and
muscle-flexing threaten Asian stability. The new catchphrase coined by US
Deputy Secretary of State James Steinberg in relation to China, “strategic reassurance,” signals an
American intent to be more accommodative of China’s ambitions. China’s primacy
in the Obama foreign policy has become unmistakable even though the president,
soon after assuming office, invited then Japanese Prime Minister Taro Aso as
his first foreign guest at the White House.

    US policy has either encouraged some of Beijing’s international actions (such as China’s first-ever deployment of a naval task in
the Indian Ocean rim under the anti-piracy banner) or turned a blind eye to
some others (including the growing Chinese economic and strategic presence in Africa). China’s
covetous hunt for oil and other resources in Africa,
however, has helped portray it as the new colonial power in that continent,
leading to a backlash in some areas. Emulating Japan
and the US in the earlier
decades, China
is underpinning its commodity outreach through financial muscle by offering
soft loans to primary-commodity producers. Through such aid diplomacy, China has won access to key resources — from
gold in Bolivia, to coal in Indonesia, to nickel in the Philippines and Myanmar,
to oil in Ecuador and Indonesia, to copper in Chile, and to gas in Myanmar. China is already the world’s
largest consumer of iron ore, aluminium, steel, copper and cement.

    For more than
three decades, China
has driven its remarkable economic growth by becoming the world’s back factory,
exporting low-value products across the globe. In the process, it has built up
a mammoth trade surplus. However, China is now reaching the point
where this approach can no longer continue to deliver high returns. Besides
moving to higher-value productivity, China needs to reduce its reliance
on exports by stoking domestic consumption.

    Sustaining China’s
economic miracle demands a dynamic, continually evolving, forward-looking
approach. More broadly, political modernization, not economic modernization, is
the central challenge staring at China. If it is to build and
sustain a great power capacity by 2030, it has to avoid a political hard
landing.

    Given China’s
territorial size, population (a fifth of the human race) and economic dynamism,
few can question or grudge its right to be a world power. China can also be a positive influence in Asia. But it can just as easily become the biggest
geopolitical problem. China’s
rise thus presents both an opportunity and a threat.

Brahma Chellaney is Professor of Strategic Studies,
Centre for Policy Research.

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